No-deal Brexit + Covid-19 = Economic Horror for UK? - Update


There has been lot of talk since I wrote my original article in October - but not a lot which will be much help to those of us who live in the UK. Perhaps the loss of Dominic Cummings and the approval of a Covid-19 vaccine will be a benefit. However, the lack of progress with the “oven-ready” Brexit trade deal, the ongoing problems with “Track and Trace”, the absence of capacity to use the promised vaccines, the lack of post 31 December information to enable businesses to plan for 2021 together with the departure of several of Boris Johnson’s advisers could be disastrous for ordinary people in the UK.

 

Costings for Brexit Trade Deals and the Economic Cost of a No-Deal Brexit

The Governor of the Bank of England has estimated that the pandemic will cause persistent scarring over the long term, with total economic output about 1.75% lower than would otherwise have been the case by the end of 2023. No-deal Brexit would not cause as much short-term damage as inflicted by the pandemic earlier this year. However, the LSE modelling has estimated a reduction in GDP worth 8% over a decade compared with remaining in the EU. On the Andrew Marr Show, George Eustace (a Cabinet Minister) said that modelling organisations have estimated that Brexit could increase costs by about 2%. He also said that positive benefits would be available, but he failed to provide any specific details of what these could be. The Government does not appear to have published any useful forecasting data, but an unknown person has leaked a Cabinet Office briefing on the possible impacts of the last stage of Brexit. It details “reasonable ‘worst case’ scenarios” across 20 different areas of national life from oil and healthcare to travel & policing and depicts a country struggling to overcome difficulties posed by one crisis, yet bracing for a second, as all departments are told to prepare for a 'no deal’ departure.

 

  1. Global & British food supply chains will be disrupted by “circumstances occurring concurrently at the end of the year’, the paper warns. Stockpiles built up at the end of 2019 were diminished during the pandemic and cannot easily be replenished.
  2. There will not be overall food shortages, but problems could reduce availability of some fresh supplies and push up prices.
  3. Low-income groups will be most at risk of food insecurity if there is a no-deal Brexit, including single parents, children in large families and those with disabilities.
  4. It warns that economic chaos could raise the risks of a breakdown in public order and a national mental health crisis, while reducing the “financial levers” available for the government to respond to other risks.
  5. There may also be an increase in “community tensions” &public disorder. The briefing notes that police tracked increases in Brexit-related hate crime in March 2019 and the end of that year – two other periods of intensive political & public focus on leaving the EU.

 

The fallout during Spring 2020 from Covid-19 took Britain’s economy into the deepest recession on record, with a 20% drop in gross domestic product in the second quarter. The Bank of England estimates that the pandemic will cause the total economic output to be about 1.75% lower than would otherwise have been the case by the end of 2023. No-deal Brexit would not cause as much damage in the short-term as inflicted by the pandemic earlier this year. Rishi Sunak said that Covid-19 posed a much greater threat to the economy than a no-deal scenario and that a deal was preferable but that the UK would prosper in any eventuality. He also said that, in 2021, unemployment would be greater than 7% (2.6 million people). However, the LSE modelling estimated a reduction in GDP worth 8% over a decade compared with remaining in the EU. My expectation is still that the combined long-term effect on GDP is likely to be nearly 10% (i.e., 8% for a no deal Brexit and 1.7% for Covid-19). That would result in millions of people being unemployed and a massive drop in living standards especially for the poorer members of society.

 

Johnson is steadily losing his top advisers. Several senior government roles have been taken by people who have had limited recent and little relevant experience. Following the departure of Dominic Cummings in November 2020, Edward Lister has been acting as the temporary Chief of Staff. Dan Rosenfield will become the new permanent Chief of Staff from January 2021. Following the departure of Mark Sedwill as Cabinet Secretary, Head of the Civil Service and National Security Adviser, Simon Case became Cabinet Secretary and Head of the Civil Service on 09 September. David Frost’s appointment as National Security Adviser was announced in June as well as continuing as Chief Brexit Negotiator. As well as Dominic Cummings and Mark Sedwill, he got rid of Lee Cain during November and Edward Lister is leaving in January. His cabinet meetings are known to lack worthwhile discussions and he lacks useful “hands-on” management experience to make best use of the skills that are available. This leads to decisions being made according to his “whack-a-mole” strategy. Johnson could invite a few experienced scientists, medical experts, engineers, IT specialists and managers of small and large businesses to join the Cabinet but would any of them agree to work for him given his history.

Source information from:
          Imperial College
          The Economist
          BBC
          London School of Economics
          The Guardian
 
 

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